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As expected, the European Central Bank made no changes to its monetary policy on Thursday, keeping rates at record lows. Central bank boss Mario Draghi struck an upbeat tone on the outlook for economic growth in the eurozone, but warned that an “ample degree” of stimulus is still needed to get inflation back on track.

8:02 am (EST)

ECB leaves rates at record low as expected

Sara Sjolin

As expected, the ECB made no changes to policy, keeping its deposit rate at negative 0.4% and its main refinancing rate at 0%. The bank reiterated its guidance that rates will "remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases."

The policy makers confirmed the decision from October to halve its quantitative easing program to €30 billion in January and let it run until the end of September 2018 or "beyond."

The ECB also repeated previous guidance that it stands ready to increase the size and/or duration of the QE program if the outlook for inflation becomes less favorable. Next up is ECB President Mario Draghi's press conference at 1:30 p.m London time, or 8:30 a.m. Eastern Time.

It\’s the day before the big day, and investors and economists are scrambling to predict what the European Central Bank might do at its highly anticipated meeting on Thursday.

Nomura predicts a 10 basis-point rate cut, J.P. Morgan also sees lower interest rates, while Deutsche Bank expects long-awaited action on purchases of asset-backed securities, a form of \”private QE\”. And then there\’s Goldman Sachs. It expects the ECB to do absolutely nothing.

Bond investors who are trying to figure out where to take their talents — or investment choices — would do well looking to NBA star LeBron James, according to Michael Lewitt at The Credit Strategist.

To much fanfare, James is returning to his home state of Ohio to play for the Cleveland Cavaliers next season. But it\’s not his choice of teams that makes him such a good role model for bond investors — it\’s the contract he signed, according to Lewitt.

Concerns about possible actions by the Bank of Israel to cap the strength of the shekel has prompted Acadian Asset Management to short the currency.

The dollar
has dropped 14.4% against the Israeli shekel since July 26, 2012, when the dollar traded at the highest level in five years. The ICE dollar index
, a gauge of the greenback\’s strength against six other currencies, is down 2.9% in the same period.

“Israel has low interest rates [and] low inflation but the currency has continued to strengthen because of strong balance of payments, newfound energy wealth and an economic backbone is in tech sector, which is booming,” said Bryan Carter, lead portfolio manager for Acadian Asset Management’s emerging-market strategy.

For many equity investors, the 10-year Treasury
yield is a quick-hit indicator on the pace of economic growth, but a recent drop in the benchmark interest rate is throwing its value into question, according to RBC Capital Markets strategists, led by Jonathan Golub.

\”We believe investors should look past the 2.5% 10-year and focus on U.S. economic strength,\” said Golub in a Wednesday note to clients.

Russia reduced its holdings of U.S. Treasurys by $25.8 billion in March as the crisis in Ukraine was getting more tense, according to Treasury International Capital data released on Thursday.

Russia was facing potential economic sanctions from the U.S. at the time, which led to speculation that the eastern European nation was moving around its Treasury holdings to avoid impending restrictions. In the middle of that month, the New York Federal Reserve Bank reported a $105 billion drop in its holdings held in custody for other banks, which many believed to be Russia\’s doing.

There\’s no shortage of explanations for why Treasury yields have fallen precipitously over the past few days, and with 10-year Treasury note
yields falling below 2.50% for the first time this year, it\’s likely that there\’s truth to all of them.

But you can\’t fight the Federal Reserve, as they say, and the backdrop of where the central bank pegs its key lending rate is the bedrock of what the yield curve looks like.

Mutual funds and exchange-traded funds that buy bank loans had an astounding 95 weeks of inflows. And then came April.

During the week ended April 30, investors pulled $620 million from leveraged loan funds, marking the third week of net withdrawals, and the biggest outflow since August 2011, according to Bank of America Merrill Lynch research.

A huge amount of money went into these funds in recent years, as investors began to favor leveraged loans as protection against rising rates. Such securities tend to be arranged for companies that have below investment-grade ratings, and they are often compared with high-yield bonds. Investors access these bank loans through funds like the PowerShares Senior Loan Portfolio
and the MainStay Floating Rate Fund
.

Much has changed in the eight months since. The dollar
recently bought 60.01 rupees, marking a decline of 2.9% on the year. The WisdomTree Indian Rupee Fund
has gained 6.1% in 2014 to date, in comparison with the exchange-traded fund’s 5.4% 2013 drop.

Here are three reasons Sara Yates, global head of foreign-exchange strategy at J.P. Morgan Private Bank, says the rupee is the bank\’s highest-conviction emerging-market currency:

Data from the Office for National Statistics showed on Tuesday that the economy expanded by 0.8% in the first three-months of the year, marking a fifth straight quarter of GDP growth. The number was short of expectations of a 0.9% rise, but the small miss wasn\’t enough to put a break on economist optimism.

For the Bank of England these \”disappointing\” numbers are a blessing in disguise, as the central bank finds itself in a Goldilocks scenario: the U.K. economy is not too hot, not too cold, it\’s just right.

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